by Meridith Levinson

Channel Integration: How Circuit City and Sears Built the IT Infrastructure for Buy Online, Pick Up In Store

Aug 01, 200214 mins
BPM Systems

My father loves Lands’ End. His entire XL wardrobe consists almost entirely of jackets, sweaters, button-downs, khakis, jeans, polo shirts, shorts and shoes from the venerable Dodgeville, Wis.-based cataloger. He loves Lands’ End’s traditional fashions, customer service and unconditional guarantee?which he tests every few seasons when he returns his loafers, claiming the soles have worn thin.

My father hates Sears, the ancient giant of Hoffman Estates, Ill. He says its snowblowers, washing machines, dryers and dishwashers all break down. And its repairmen never show up on time.

When he learned last May that Sears was buying Lands’ End, my father was not happy. In fact, I haven’t seen him so crestfallen since the New England Patriots lost to the Chicago Bears in Super Bowl XX. He thinks his least favorite mass merchant is going to ruin his favorite apparel retailer. “Sears will milk them and milk them dry,” he says.

Whether Dad is right or wrong, whether the acquisition ruins Lands’ End or opens up a new market for it, one thing is clear: Bricks need clicks, clicks need bricks, and Sears has hugely strengthened its Internet presence with its purchase of Lands’ End, both in terms of its highly regarded line of clothing and its equally highly regarded Web technology.

“In today’s retail market, you cannot be a credible national retailer without having a robust website,” says Dennis Bowman, senior vice president and CIO of Circuit City based in Richmond, Va., adding that seamless multichannel retailing has become as much of a customer expectation as stores that are clean and well-stocked.

To that end, multichannel retailers will be working furiously during the next five years to integrate their e-commerce sites with their inventory and point-of-sale (POS) systems so that they can accept in-store returns of merchandise bought online and allow customers to buy on the Web and pick up in the store.

Some companies, such as Best Buy, Circuit City, Office Depot and Sears, already do so. Their bricks and clicks are completely integrated. These companies have been the fast movers because they already had an area in their stores for merchandise pickup (usually for big, bulky items like TVs and appliances), and because long before the Web they had systems and processes in place that facilitated the transfer of a sale from one store to another.

Other retailers are partially integrated. Ann Taylor, Bed Bath & Beyond, Eddie Bauer, Linens ’n Things, Macy’s, REI, Target, The Gap and others let customers return but not pick up online-ordered merchandise in stores. But there’s still a host of big-name retailers including J.Crew and Victoria’s Secret that can’t do even that.

“It’s not something we offer at the moment, and it’s not something we’re planning to offer any time soon,” says Karina Sokolovskaya, spokeswoman for New York City-based J.Crew. IT and e-commerce executives at Victoria’s Secret had no comment.

Other retailers and analysts say that companies such as J.Crew and Victoria’s Secret are taking longer to integrate their channels because they’re starting from scratch. They don’t have the infrastructure in place that lets them transfer sales from one store to another, nor do they have an area in their stores where they can set aside items that customers have reserved online.

“If they set up their websites separately, it may be hard for them to make it work from a back-end, accounting point of view,” says Sally McKenzie, Eddie Bauer’s vice president of e-commerce.

Ultimately, the explanation for why so few retailers offer the full “buy online, pick up in store” capability is because the level of integration required to make that work is awfully hard to achieve. The few pioneering companies that have succeeded have done so by patching their information systems together, leveraging robust POS systems, implementing a real-time inventory system, and building on existing processes and in-store infrastructure. Giving consumers the flexibility to shop online and return or pick up items in stores is helping beleaguered Sears struggle out of its financial tailspin. It’s helping Circuit City keep the cash rolling in at a time when the company’s profits are threatened by sharp decreases in the price of consumer electronics. And while Eddie Bauer does not offer in-store pickup, simply letting customers return Web orders to stores is helping the company increase customer loyalty in the apparel market where competition is as stiff as starched denim.

While my father may be pessimistic about the fate of Lands’ End, he might come to appreciate the convenience of being able to return his worn loafers to the Sears near him, rather than having to pack them up and ship them off to Wisconsin.

Circuit City Where the Web Is Just Another Store

The seamless integration of Web and store operations hinges on having the right technology, the right infrastructure, the right processes and, above all, the right mind-set.

In 1998, Circuit City, the $12.8 billion consumer electronics retailer, put Web-enabled kiosks in its stores to allow customers to build customized PCs. Surprisingly, 50 percent of the people who purchased PCs through these kiosks wanted to pick them up in the store rather than have them delivered to their home.

A year later, while the company was codifying its e-commerce strategy, it struggled with how to fund its vision of multichannel retailing. Venture capitalists were not throwing millions Circuit City’s way. Though hype about the Web was brewing hotter and faster than lattes at Starbucks, shareholders still viewed the new medium as a risky investment. If Circuit City wanted to do something about the Web, it was going to have to do it on a budget.

Circuit City’s penny-wise attitude led it to use its own assets to set up its e-commerce infrastructure. Had the company spun off its site as a separate entity (as so many other enterprises did in order to fund their Web initiatives), Circuit City (like others) would have wound up with a website that was not integrated with its other systems.

“We thought of the Web as just another store. We basically set it up as a virtual location,” says E-Commerce Director Steve Duchelle.

That notion that the Web store was no different from any other store led Circuit City to adapt its proprietary POS technology?which already let stores sell from one to another?to sell across channels and offer pickup services.

“We already had an existing capability called alternate-location sales where you can sell the inventory of one store from another. It came to us that when you buy on the Web, you’re basically doing an alternate-location sale,” says CIO Bowman.

To help the company identify which systems needed to interface in order to support multichannel retailing, Circuit City developed a business process flow diagram. The diagram made the integration look easy, but when the systems engineers got down to work, they realized this was not just a matter of writing a bit of code and patching some middleware between systems. It involved complex systems interface changes and developing entirely new business processes.

If, for example, a customer arranged to pick up a portable Sony CD player in a store that was priced on the Web at $99.99 but sold for $89.99 in her local store, the IT staff had to write some business logic on top of the merchandising system so that the POS system in the store would know to ring the CD player up at the lower price.

Once back-end kinks like that were ironed out, Circuit City was ready to roll. On July 21, 1999, shop online, pick up and return in store was inaugurated. The company soon found out, however, that it had some wrinkles on the front end to smooth over.

For example, the process Circuit City currently uses to ensure that customers who reserve items online for in-store pickup actually get those items evolved over time. “There were some issues at first,” says Ken Pacunas, technology manager at the Circuit City store in Natick, Mass. “The biggest one was that there was no time limit to how long an employee could take to pick a product.”

If an employee waited too long to get a pack of batteries off the shelf and put them in a back room with the customer’s name on it, another customer might buy it before the first customer arrived. Result: one irate customer.

To prevent that scenario, Circuit City instituted a 15-minute rule. When an order for an in-store pickup comes in to the store from, a printer connected to the POS system issues a pick ticket with the product ID and the customer’s name. When this happens, a timer starts and store associates have 15 minutes to pick the item, acknowledge that they’ve done so in the POS system and put it on a shelf designated for in-store pickup. If the POS system doesn’t recognize the completion of the task within 15 minutes of the pick ticket being generated, a beeping alarm will sound and a message will appear at the bottom of every POS terminal in the store reminding clerks that a pickup order needs to be taken off the shelf. If the POS system does not recognize the completion of the task within 30 minutes, an electronic alert is sent to the customer support center to call a manager and have him immediately set the product aside for the customer.

Pacunas says that people buy online and pick up items in his Natick store every day and that 5 percent of his store’s business comes from individuals who shop online and arrange to pick up their merchandise in the store. “It’s the convenience factor,” he says. “Most people pick their items up the same day that they order them online. They want that instant satisfaction.”

Sears The Importance of Being Real-Time

“The reason we developed the ability to buy online and pick up in store was customer feedback,” says Dennis Honan, vice president of Sears Customer Direct. “We looked at online shopping-cart abandonment, and we asked customers, Why aren’t you buying this product? Many customers said they were just interested in seeing what the cost was and that they planned to go to the store and buy it.”

In many ways, Sears approached setting up the infrastructure for buy online, pick up and return in store, which went live December 2001, in much the same way as Circuit City. Rather than buy new technology, Sears looked to leverage its legacy systems. Like Circuit City, Sears also had an existing area in its stores reserved for merchandise pickup. The two retailers even used the same Broadvision e-commerce and content management systems.

But Sears faced its own unique challenge: transforming an inventory system that was updated on a nightly basis to a real-time, Web-enabled system.

The foundation for Sears’s buy online, pick up in store capability is a UDB database that holds real-time inventory information. To connect its store POS system and e-commerce system with the UDB database, Sears uses IBM’s MQ Series middleware and XML. Those technologies function as a transport mechanism that moves data from the POS and e-commerce systems to the inventory systems. To make the POS, e-commerce and real-time inventory systems communicate with each other, Sears wrote one program that’s used by both the cash registers and the Web to invoke a command, such as “check a local store’s inventory.” All three systems run and understand this program.

“For the buy online, pick up in store, we had to enable stores to receive sale transaction data from other locations, i.e. the Web, and be able to finish it in their systems,” says Noreen Iles, Sears vice president of customer interaction systems.

To that end, Sears wrote an application that made a Web-generated transaction look identical to a store transaction. When a person searches Sears’s website for a Craftsman drill and decides to check if her local store carries it, Sears’s Web servers determine what kind of transaction has just been submitted?an inventory look up, a sale, a link to another page?and where the transaction needs to be sent. In this case, it gets sent to the real-time database. If the drill is available at the customer’s local store and she arranges to pick it up that day, the server sends the transaction to the store, indicating that the drill needs to be reserved.

It was crucial for Sears to get this integration right. It had to make sure that when a product was purchased online, the sale got logged in to its real-time inventory system and that the inventory level in the system went down accordingly.

Once Sears was sure it had all the right hooks in all the right systems, the company found it needed to make some adjustments on the front end.

Sears established inventory rules. “If a product is below two items in a store, we don’t make that available online for immediate pickup,” explains Honan. He says that the company had to tweak its inventory thresholds a few times to prevent stores from selling out of an item it indicated was in stock online between the time the customer placed the Web order and the store associate picked it off the shelf.

Within four months of launch, Sears saw a payoff. Customers who shop in stores, online and through the catalog spend three times the amount of money that single-channel customers spend. Today, 30 percent to 40 percent of online sales are picked up in stores, and?surprise!?21 percent of customers who arrange for in-store pickup end up making additional purchases when they get there.

Eddie Bauer Penny-Wise, Pound-Foolish?

Long before it developed a website, Eddie Bauer was accepting catalog returns in its stores. When the Redmond, Wash.-based retailer launched in 1996, it was natural to extend that return policy to the Web, says Vice President of E-Commerce McKenzie. “The more we can do to make it easy for customers to do business with us, the better off we’ll be. Maybe they’ll exchange an item when they return it. It’s one of the many ways that tying your channels together and making life easier for customers pays off,” she says.

While letting customers return catalog and Web purchases to stores certainly makes life easier for consumers, giving them the option to pick up those orders in stores, which Eddie Bauer doesn’t do, makes them even happier. David Kardesh, CIO of The Spiegel Group in Downers Grove, Ill., which owns Eddie Bauer, says the company has considered the idea of letting Eddie Bauer customers pick up Web orders in its stores but has no immediate plans to do so. “Cost is the issue,” he says.

The complexity of such an undertaking is another issue. Kardesh admits that setting up systems and processes for accepting in-store returns of Web and catalog orders is a relatively simple matter and does not require real-time inventory management. Setting up an infrastructure and procedures for letting customers pick up orders in stores, which does require real-time inventory management, is much more difficult.

Ultimately, the reluctance of Eddie Bauer and many other retailers to offer in-store pickup only serves to accentuate the competitive advantage retailers such as Sears and Circuit City are gaining. It will be interesting to see how Sears’s acquisition of Lands’ End affects Eddie Bauer and other apparel retailers whose fashions are similar to Lands’ End’s. Will my father’s Lands’ End wardrobe gradually give way to Eddie Bauer branded apparel due to his animus toward Sears? Or will he remain a loyal Lands’ End customer because Sears’s acquisition provides him with greater flexibility, convenience and even more opportunities to interact with his favorite retailer? Knowing my father, he’ll choose the latter.